Secrets of the Latest GDP Report

MoneyShow's Jim Jubak takes a unique, in-depth look at the US GDP report, which may give us important clues as to the health of the economy in 2013.

We got a preview of what might happen if we get sequesters and budget cuts and all that good stuff that might happen in April or so for the federal government. The preview came in fourth-quarter GDP numbers.

Basically it was a very, very light miss. We wound up with GDP down 0.1% for the fourth quarter on the first read.

You look at it and you say there’s no real problem here because it’s all the sort of private part of the economy stuff—consumption was up, investment was up. The only stuff that was down was government spending. We had a 6.6% or so drop in government spending for the quarter year to year, and most of that came on the federal level; a 15% drop in spending on the federal level.

You go OK, there’s really nothing wrong with the private economy. This was just spending cuts at the end of the year, the fiscal crisis and all that stuff. If you think about that, then go OK, we’re talking about some kind of a replay on this when the cuts that we put off for three months in January come up again in April.

Remember that there are big cuts to spending in defense as well as some discretionary items. If you look at that and say OK, this is still the real economy—government spending, private sector spending, Not different things, just different ways of sourcing the money—it has a multiplier effect on all of that.

You can then say maybe what we’re looking at in the first-quarter GDP numbers and the second-quarter GDP numbers are a US economy that’s slower than people expect because of that effect on federal spending. In that sense, the fourth-quarter GDP drop is a preview and it’s not a particularly comfortable one.